Presentation on theme: "Financial Analysis LAP 6"— Presentation transcript:
1 Financial Analysis LAP 6 Count the CashFinancial Analysis LAP 6
2 Objectives Describe the importance of cash flow. Describe the components of a cash flow statement.
3 Describe the importance of cash flow. ObjectiveDescribe the importance of cash flow.
4 When you owe more money than you have– Your cash flow is out of balance.You may not be able to pay all of your bills.You may need to borrow money from a family member or a friend.Not a situation you want to be in very oftenBusinesses sometimes are in the same situation.Businesses monitor their cash flow to avoid this problem.
5 Importance of Cash Flow Cash—it makes the world go around.Businesses need cash to operate.Need to manage their cash flow:The movement of funds into and out of a businessDetermine the amount of cash they have to work with at any given time
6 Cash Flows Into a Business From Five Main Sources Start-up moneySale of productsLoansInterestSale of assets
7 Main Sources of Cash Flowing Out of a Business Operating expensesCost of goods soldAssetsLoan paymentsTaxesMiscellaneous
8 Monitor Cash Flow To build a cash surplus when sales are up Creates a safety net for the slow timeKeeps the cash flow balanced
9 Describe the components of a cash flow statement. ObjectiveDescribe the components of a cash flow statement.
10 Cash Flow StatementBest guess, or estimate, as to when, where, and how much money will flow into and out of the businessTells the business–When money will flow inWhere money will flow in fromHow much money will flow in
11 Finding Necessary Information May be a problem for new businessesDo not have previous financial dataOften rely on figures obtained through marketing researchExisting businesses have financial information.Review previous profit-and-loss statements.Analyze industry trends and predictions.
12 Components of a Cash Flow Statement Cash paymentsBeginning cash balanceMoney available at the beginning of each monthCash receiptsSpecific sources of money flowing into the businessTotal cash receiptsAll of the sources of income listed under cash receiptsTotal cash availableCash available to spend each monthSources of cash flowing out of the businessTotal cash paid outDetermined by adding all of a business’s cash paymentsEnding cash balanceCash a business has left at the end of the month
13 What This Means Indicates the financial condition of a business Gives a business a good idea of amount of money that will flow in and outPositive cash flow means there is enough money on hand to meet monthly obligations.Negative cash flow means the business will need to obtain additional money to continue operating.Businesses with extra cash are able to invest.Investments lead to growth and expansion.This generates more sales and more cash.Result is a prosperous business that has cash to continue growing.
14 Steps to managing your cash flow List all of your income for the month.List all of your expenses, even the small ones.Total the amounts on each list.Income should be more than expenses.If not, there are two options:Reduce your expenses.Find a way to bring in more income.
15 Businesses often use cash flow statements to obtain credit. What if they present information in a way that is legal but not quite ethical?What if they get the loan, but the bank finds out?Bank might not trust the business in the future.May always be concerns about accuracy of financial informationBusiness might have trouble getting other loans.Was it worth it to be less than completely truthful?Was there another way to be ethical and still get the loan?
17 Digital-based photography sources: DIGITAL STOCK CORP.;Business & IndustryObj. B: #013Photos copyright 1998 Corbis Corp.750 Second Street, Encinitas, CA 92024DIGITAL VISION;Teenager TodayObj. B: #130271Photos copyright Digital Vision Ltd., all rights reserved.833 Fourth Ave. SW, Suite 800 Calgary, AB, Canada T2P 3T5
18 Copyright:All photographic digital images on this CD are owned by the aforementioned photographic resources or their licensors and are protected by the United States copyright laws, international treaty provisions, and applicable laws. No title to or intellectual property rights to the images on this CD are transferred to you. These sources retain all rights and are not to be used, digitally copied, transferred, or manipulated in any way. To do so is a violation of federal copyright laws.